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380 U.S.

85 S.Ct. 1130
14 L.Ed.2d 1


P. G. NEILL et al.
No. 19.
Argued Jan. 25 and 26, 1965.
Decided April 26, 1965.

Frank I. Goodman, for appellant.

Allan G. Shepard, Boise, Idaho, for appellees.
Mr. Chief Justice WARREN delivered the opinion of the Court.

This appeal presents the issue of whether, where a licensed Idaho dealer in
motor fuels sells and transfers gasoline outside the State for importation into
the State by an agency of the Federal Government, the State of Idaho may
constitutionally impose an excise tax upon the transaction on the theory that the
dealer constructively 'receives' the gasoline in Idaho upon its importation.

On June 26, 1959, invitations for bids were issued by the United States
Government from the Regional Office of the General Services Administration
(GSA) at Seattle, Washington, covering some 607 separate itemseach
designed to supply a distinct motor fuel need of a particular government agency
at one of a multitude of locations in Idaho, Montana, Oregon, and Washington
for the period from November 1, 1959, through October 31, 1960. Bids on each
item were to be submitted to the Seattle office and were to be evaluated on their
individual merits and accepted or rejected without reference to other items.

Appellant's predecessor in interest, Utah Oil Refining Company (Utah Oil), is a

Delaware corporation. Pursuant to the GSA invitation it transmitted bids from
its offices in Salt Lake City, Utah, on various items. Included were numbers 63
and 64 dealing with the supply of approximately 200,000 and 1,000,000 gallons
of gasoline, respectively, for the use of the Atomic Energy Commission (AEC)

at Idaho Falls, Idaho. Bids on these two items were submitted in alternative
form, quoting a price f.o.b. Salt Lake City and a price f.o.b. the AEC activity
site in Idaho.1

On October 26, 1959, Utah Oil's bids on the two items were accepted in Seattle
by the GSA. Under the terms of the contract gasoline was to be sold to the AEC
at a designated price f.o.b. Bulk Plant, Salt Lake City. The total price did not
include any state tax but provision was made for an increase in the contract
price if any such tax was imposed.

In accordance with the contract, the AEC, or its operating agent, Phillips
Petroleum Company, periodically ordered some 1,436,355 gallons of gasoline.
Delivery was effected by Utah Oil in Salt Lake City. Although the facts
subsequent to delivery are in dispute, it appears that thereafter common carriers,
selected and paid by the AEC, transported the fuel from Salt Lake City to Idaho
Falls where it was placed in AEC-owned storage tanks and used in AEC
operations in Idaho.2

During the time that Utah Oil was performing the contract, it was authorized to
do business in the State of Idaho as a 'licensed dealer' as defined by the Idaho
Motor Fuels Tax Act, as amended, Idaho Code, Tit. 49, c. 12 (1957). This Act
imposes an initial requirement that all motor fuel 'dealers' hold a permit issued
by the state Tax Collector. To procure such a permit one need only fill out an
application, post bond, and pay a five-dollar filing fee. Securance of a permit is
necessary before any dealer can 'import, receive, use, sell or distribute any
motor fuels' within the State. Idaho Code Ann. 491202 (1957).

A 'dealer' is defined by 491201 as any person who first receives motor

fuels in the State within the meaning of the word 'received.'3 As a dealer, one is
required to make monthly reports to the State Tax Collector and pay an excise
tax of six cents per gallon on all motor fuels 'received' within the ambit of 49
1201(g). The Act then provides that the proceeds of the tax are to be placed
into a state highway fund.

During its performance of the contracts Utah Oil submitted the required
monthly reports. The State Tax Collector thereupon insisted that payment of the
six-cent tax be forthcoming pursuant to 491201(g) due to the fact that Utah
Oil was a licensed dealer in the State of Idaho which had sold motor fuel to an
agency 'not the holder of (a) * * * dealer permit * * * for importation into the
state * * * from a point of origin outside the state.' Taxes totaling $86,181.30
were paid under protest. The instant litigation was then initiated in the District

Court of the Third Judicial District of the State of Idaho for refund. Appellant
claimed at the threshold that the imposition of the tax on an out-of-state sale to
the Federal Government violated the Due Process, Commerce, and Supremacy
Clauses of the Constitution.

The trial judge granted summary judgment for the appellant finding that the
imposition of the tax violated the Due Process and Commerce Clauses since it
was applied to a sale made outside of Idaho. On appeal the Idaho Supreme
Court reversed, finding the constitutional objections to be without merit. 86
Idaho 7, 383 P.2d 350. We noted probable jurisdiction, 377 U.S. 962, 84 S.Ct.
1643, 12 L.Ed.2d 734, because the validity of a state statute had been upheld
over an objection that it was repugnant to the Constitution. 28 U.S.C. 1257(2)
(1958 ed.)


When passing on the constitutionality of a state taxing scheme it is firmly

established that this Court concerns itself with the practical operation of the tax,
that is, substance rather than form. State of Wisconsin v. J. C. Penney Co., 311
U.S. 435, 443444, 61 S.Ct. 246, 249, 85 L.Ed. 267; Lawrence v. State Tax
Comm'n, 286 U.S. 276, 280, 52 S.Ct. 556, 557, 76 L.Ed. 1102, and cases cited
therein. This approach requires us to determine the ultimate effect of the law as
applied and enforced by a State or, in other words, to find the operating
incidence of the tax. Connecticut Gen. Life Ins. Co. v. Johnson, 303 U.S. 77,
80, 58 S.Ct. 436, 438, 82 L.Ed. 673.


When a state court has made its own definitive determination as to the
operating incidence, our task is simplified. We give this finding great weight in
determining the natural effect of a statute, and if it is consistent with the
statute's reasonable interpretation it will be deemed conclusive.4 Such a
situation is manifest in the instant case.


The trial judge found that the operating incidence of the tax clearly fell on the


'(T)he dealer is not in any way required to pass the tax on or collect it from the
consumer, and the ultimate purchaser or consumer has no responsibility
whatsoever for payment of the tax. While it may be the overall policy of the
state to collect a tax of 6 per gallon on all gasoline used to propel motor
vehicles over Idaho state highways, the taxable event or transaction is not the
use by the local consumer or purchaser, but the 'receipt' of the gas by the dealer.

It cannot be said under this statute that the licensed dealer is the mere collector
of a tax from the purchaser or user * * *.'

This conclusion was further buttressed by finding that the Idaho administrative
interpretation of the state in the past has been to treat it as a privilege tax upon
the dealer.5


On appeal the Idaho Supreme Court left the trial court's conclusions
undisturbed. Moreover, the State Attorney General in his brief before this Court
expressly states that the tax 'is a privilege tax, the incidence of which falls on
the dealer * * *.'6 This unanimity between the courts of Idaho and its agencies
is to us in accord with the literal interpretation of the Act inasmuch as 49
1210 clearly states that 'each dealer shall pay to the commissioner an excise tax
of six cents per gallon on all motor fuels * * *' with no coinciding provision
passing the burden of the tax to the purchaser. We therefore give the findings
below controlling effect and hold that the incidence of the tax falls on the


Although the Idaho Supreme Court agreed with the trial judge that the taxed
events were the sales of gasoline in Utah, two factors were considered sufficient
to bring the transactions within the purview of Idaho's taxing power. First, Utah
Oil sold the gasoline with knowledge that it would be imported into and used
within Idaho; and, second, Utah Oil had been authorized to do business in Idaho
having applied for and received a dealer's permit 'authorizing it to enter into the
Idaho market as a distributor of motor fuels * * *.' 86 Idaho, at 23, 383 P.2d, at
360. We conclude that these considerations are insufficient to uphold the tax as
against attack under the Due Process Clause.


The mere fact that Utah Oil knew that the gasoline was to be imported into
Idaho merits little discussion. More than once this Court has struck down taxes
directly imposed on or resulting from out-of-state sales which were held to be
insufficiently related to activities within the taxing State, despite the fact that
the vendor knew that the goods were destined for use in that State. Miller Bros.
Co. v. State of Maryland, 347 U.S. 340, 74 S.Ct. 535, 98 L.Ed. 744 (use tax);
Norton Co. v. Department of Revenue, 340 U.S. 534, 71 S.Ct. 377, 95 L.Ed.
517 (gross receipts tax); McLeod v. J. E. Dilworth Co., 322 U.S. 327, 64 S.Ct.
1023, 88 L.Ed. 1304 (sales tax).


These cases have also firmly established the doctrine that when a tax is

imposed on an out-of-state vendor, 'nexus' between the taxing State and the
taxpayer is the outstanding prerequisite on state power to tax. Consistent with
this requirement there must be 'some definite link, some minimum connection,
between a state and the person, property or transaction it seeks to tax.' Miller
Bros. Co. v. State of Maryland, supra, 347 U.S. at 344-345, 74 S.Ct. at 539.
Granted that when a corporation, pursuant to permission given, enters a State
and proceeds to do local business the 'link' is strong. In such instances there is a
strong inference that it exists between the State and transactions which result in
economic benefits obtained from a source within the State's territorial limits.
The corporation can, however, exempt itself by a clear showing that there are
no in-state activities connected with out-of-state sales. In such instances, the
transactions are said to be 'dissociated from the local business,' Norton Co. v.
Department of Revenue, supra, 340 U.S. at 537, 71 S.Ct. at 380, and therefore
may not, consistent with due process, be taxed.

In the present case it is plain that neither Utah Oil's position as a licensed dealer
in Idaho nor the fact that it otherwise engaged in business there will suffice to
uphold the tax. Utah Oil's transfer of gasoline was unquestionably an out-ofstate sale vis-a -vis Idaho and entirely unconnected with its business in that
State. Each and every phase of the transaction had its locus outside of Idaho:
invitations for bids were issued by the Government in Seattle, Washington;
Utah Oil submitted its bids from Salt Lake City; the bids were accepted in
Seattle; the contract called for delivery of the gasoline f.o.b. Salt Lake City;
Utah Oil delivered the gasoline to Salt Lake City, and it was there that title
passed. There is no reason to suppose, nor does the record in any way indicate,
that Utah Oil's activities in Idaho contributed in any way to the procurement or
performance of the contract. Compare Norton Co. v. Department of Revenue,
supra, with General Motors Corp. v. Washington, 377 U.S. 436, 84 S.Ct. 1564,
12 L.Ed.2d 430.


The Idaho Supreme Court was fully cognizant of these facts but chose to
characterize Utah Oil's dealer's permit as authorizing it 'to engage in the very
activity it now claims is exempt from the tax.' 86 Idaho, at 23, 383 P.2d, at 360.
This statement, however, fails to reflect the clear holding by this Court that the
granting by a state 'of the privilege of doing business there and its consequent
authority to tax the privilege do not withdraw from the protection of the due
process clause the privilege' of doing business elsewhere. Connecticut Gen.
Life Ins. Co. v. Johnson, supra, 303 U.S. at 82, 58 S.Ct. at 439. This is exactly
the situation present in the instant case. Under the circumstances we hold the
fact that Utah Oil was the holder of an Idaho dealer's permit to be purely


Since we decide that the exacted tax violates the Due Process Clause, there is
no need for discussion of constitutionality under the Commerce or Supremacy
Clause. The decision of the Idaho Supreme Court is reversed and the case
remanded to that court for proceedings not inconsistent with this opinion.


Reversed and remanded.


Mr. Justice BLACK dissents.

Although the invitation for bids issued by the GSA proposed the alternative
delivery points it was discretionary with each bidder as to whether or not
quotations for each point were submitted.

On the ground that the tax was not a 'use tax' in the usual sense, the trial judge
declined the offer of proof as to what occurred after delivery which was
tendered by the State Tax Collector. The Idaho Supreme Court concurred,
holding that such evidence was immaterial due to the fact that the status of
Phillips Petroleum was only that of a contractor for the AEC.

The section provides, inter alia: '2. Motor fuel imported into this state other
than that placed in storage at refineries or pipe line terminals in this state shall
be considered to be received immediately after the same is unloaded and by the
person who is the owner thereof at such time if such person is a licensed dealer;
otherwise such motor fuel shall be considered to be received by the person who
owned such fuel immediately prior to its being unloaded; provided, however,
motor fuels shipped or brought into this state by a qualified dealer, which fuel
is sold and delivered in this state directly to a person who is not the holder of an
uncanceled dealer permit, shall be considered to have been received by the
dealer shipping or bringing the same into this state; further provided that motor
fuel which is in any manner supplied, sold or furnished to any person or agency,
whatsoever, not the holder of an uncanceled Idaho dealer permit, by an Idaho
licensed dealer, for importation into the state of Idaho from a point of origin
outside the state, shall be considered to be received by the Idaho licensed dealer
so supplying, selling, or furnishing such motor fuel, immediately after the
imported motor fuel has been unloaded in the state of Idaho.' (Emphasis added.)
Idaho Code Ann. 491201(g) (Supp.1963).

Compare Railway Express Agency, Inc. v. Com. of Virginia, 347 U.S. 359, 369
372, 74 S.Ct. 558, 564, 565, 98 L.Ed. 337 (dissenting opinion), with Railway
Express Agency, Inc. v. Com. of Virginia, 358 U.S. 434, 440441, 79 S.Ct.
411, 415416, 3 L.Ed.2d 450.

Letter from Don J. McClenahan, Assistant Attorney General of the State of

Idaho, to Bigelow Boysen, May 9, 1950. The conclusion was reached in this
opinion that 'the act places the legal incidence of the tax upon the dealer * * *
and not on the vendee or consumer.' A decision by the Comptroller General
also agrees with this conclusion. 24 Comp.Gen. 163 (1944).

Brief for the appellee, p. 5.